Neither November’s export slide nor Toyota Motor Corp.’s profit woes are what they seem. Corrected for yen appreciation, exports were down 8.9%, imports up 6.9%. Overall, Japan’s recession is mild and its fiscal stimulus modest. The yen’s strength is a sign currency markets see that in an economically sniffling world, Japan’s economy is the closest to rude health.
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The world recession has not missed Japan, whose real gross domestic product (GDP) has declined slightly for two quarters and is expected to fall 1.3% in the year to March, before rising marginally the following year. However, the US, the euro area and Britain are all expected to see equal or greater economic declines than Japan in 2009, according to The Economist magazine’s poll of economic forecasters. Moreover, the current rate of decline in the US and UK economic statistics points to slumps much worse than Japan’s. Its banks are in better shape, too.
At first sight, November’s 27% drop in Japanese exports suggests either Japanese uncompetitiveness or collapsing world trade. However, Japan’s trade accounts are in yen, which has appreciated by 24.3%. When corrected for this, Japan’s exports were down only 9% while imports were up 7%, an indication that Japanese domestic demand remains robust.
It’s a tough economy all round. Toyota expects an operating loss in the current fiscal year, for the first time in 71 years of existence, on a 15% decline in global sales volume. Honda Motor Co. Ltd also reported that operating profits for that period would be down 81%. Given the rising yen, those expectations are hardly surprising. However, they derive more from the sales volume decline than from increased Japanese costs, since less than half of Toyota’s production is now inside Japan.
Going strong: Ships at Yokohama port. Corrected for a rise in the yen, Japan’s exports were down 8.9%, while imports rose 6.9% in Nov. Issei Kato / Reuters
The currency markets aren’t stupid; the extraordinary yen strength reflects Japan’s stronger position than most of its competitors. Low Japanese interest rates are above its competitors’ in real terms, while fiscal stimulus totalling 2.5% of GDP is modest by Western standards.
Not only should Japan’s recession be milder than elsewhere, but the subsequent hangover from excessive deficits and negative real interest rates should be correspondingly less painful.